Mentor has 4,600 employees, 1,100 of them at its Wilsonville headquarters. Its fate will have profound implications in Oregon, which has lost several corporate headquarters in recent years and is struggling against chronically high unemployment.

Icahn wrote that he would seek no "breakup fee," for the deal, adding that he expects other suitors to emerge and offer even more.

Mentor's stock promptly jumped to its highest price since 2007. Almost immediately, skeptics noted that Icahn made no binding commitment to buy Mentor. The stock gave back some of its gains as the day went on and closed at $15.47, up 6.5 percent on the day but well below Icahn's offer.

Observers question whether Icahn really wants to own Mentor, or if he's just shaking the bushes for other buyers while turning up the heat on company management.

"I just don't think he's going to get the action that he's hoping for," Smith said.

Engineers use Mentor's software to design semiconductors and other electronics. After two years of losses, the company has said it will return to profitability and post record sales when it reports annual financial results Thursday.

But investors say the company is still spending too much on administration and marketing. The company will undoubtedly face close questioning about Icahn from
investment analysts on its conference call following Thursday's financial report.

On Tuesday, Mentor said it will review Icahn's bid "and make a recommendation to shareholders in due course."

"Mentor Graphics shareholders are advised to take no action at this time pending the review of the proposal by the Mentor Graphics Board," the company said in a written statement.

Mentor declined to elaborate and Icahn did not return a call seeking additional comment. His office said he was traveling.

Icahn made his name, and his fortune, by muscling into companies and shaking them up. By forcing out management, demanding a sale or mandating cost cuts, the bellicose investor maintains he can wring extra value out of a business for its shareholders.

If they succeed in toppling Mentor's own nominees in a proxy fight at the company's annual meeting in May, they could seize control of the company's board.

Together, though, Icahn and Casablanca own just over 20 percent of Mentor's stock. So they would need considerable help to win the board seats.

Tuesday's bid might make that easier buy creating a tangible payoff for investors if Icahn wins. In his letter Tuesday, Icahn told Mentor's board he expects others will top his offer and he encouraged the company to let its investors vote on any buyout proposals.

"As we have told you," Icahn wrote, "we believe that there are potential strategic bidders for Mentor Graphics whose bid will reflect inherent synergies and should be superior to our $17 offer."

"They have a good employee group, a good engineering group," Icahn said. "I think nobody would want to change that."

"In the upper echelons of upper management," he added, "as in many companies, there probably are redundancies."

A great deal depends on who ends up with Mentor.

The company could be parceled off in pieces, or taken private by Icahn or another investor with a sharp eye for cutting expenses.

The most logical buyer would be one of the other two big companies in the EDA industry, but there are good reasons why each might not seek to acquire Mentor.

For one, the EDA industry is highly concentrated. Federal antitrust regulators might block a merger or require that a buyer unload part of Mentor as a condition of approval.

In 2008, Mentor fought off a $1.5 billion hostile takeover by rival Cadence Design Systems. Cadence went into a financial tailspin that left it unable to consummate the deal.

Cadence has recovered considerably since then. Its chief marketing officer, John Bruggeman, told Dow Jones Newswire (subscription required) on Tuesday that his company might make a bid for Mentor. But Mentor might be a better fit for other suitors, he said, without identifying any.

"While it makes a lot of sense for Cadence, it makes a lot of sense elsewhere," he told Dow Jones, "and it make a lot of sense for us not to do it."

Cadence has nearly $1 billion in long-term debt. Smith, the industry analyst, said talk of it making a bid for Mentor is unrealistic.

"They tried it before and they ran into trouble," Smith said. "I think they're just trying to make trouble, put a scare into the Mentor customer base."

Other potential buyers include Synopsys, the biggest company in the EDA industry, which had nearly $870 million in cash and short-term investments at the end of January.

But much of Synopsys' cash is overseas, and would be subject to U.S. taxes if the company used it to buy Mentor. Analysts have also questioned whether Synopsys' business model -- it bundles its software tools as a package -- would fit with Mentor's.

"I put a low likelihood on either Cadence or Synopsys making a bid," said Richard Valera, who follows the EDA industry for Needham & Co. in New York.